Money, money, money, it’s a rich man’s world

Last week we had a budget statement from the chancellor.  Note I said “a budget statement” and not “the budget statement”.  I’m certainly old enough to remember when there was only one budget a year and most folk looked forward with apprehension to how much the chancellor was going to slap on drinks and smokes.  The media were full of suggestions for days in advance about what should be announced and, afterwards, the analysis of winners and losers went on for more days.    Now we seem to have a budget announcement about every month and anything interesting is leaked to the media by the Treasury in advance of the statement so everyone has a decent excuse for sleeping through Phil’s speech.

For Scotland, the best news appeared to be an extra £2bn on the Scottish block grant and the decision to remove the VAT liability from Scottish emergency services.  However, a more careful look at the announcement shows a slightly less optimistic view.

Firstly, looking at block grant, the £2bn (actually £1.97bn) is the total effect on Barnet consequentials of the UK spending changes announced in the Budget for the four year period from 2017 to 2021.  It includes over £1.1bn of financial transactions, money which has to be repaid to the UK Treasury.  Let’s call it a loan.  Perhaps Scotland only gets given the money so that Westminster can have the fun of taking it back, now that we don’t have a Labour First Minister to return money they can’t think of anything to spend it on (© Jack McConnell et al, 2000-2007)  Of the remaining approximately £850m, £500m are increases in capital spending, leaving only £350m for additional day-to-day spending.  Of course, that’s the raw cash terms amount, but that increase represents a reduction when inflation is taken into account.  So perhaps not just as good a settlement as the UK Government, and of course the Tories and the BritNat media, would try to make us believe.

Secondly, the VAT change.  In the period since its inception in 2013, Scottish Police and Fire have been the only UK forces not able to reclaim VAT, costing the Scottish emergency services well over £100m.  Over this whole period, the Scottish Government and the SNP MPs have constantly pointed out the unfairness of the situation, but have been more or less ignored by the UK Government, whose only response had been to say “Suck it up, Scotland.  We told you we would screw you, so you can’t complain now”.

So, what has changed?  The cynical amongst us (not me, of course) might point out that the only change is the election of a few more Tory MPs.   Hammond, somewhat pathetically, tried to justify his decision to remove the liability as a consequence (more consequentials?) of the new Scottish Tory MPs being able to explain the problem in such simple language, that even he could understand.  Well, I have heard that the new Scottish Tory MPs are quite good at being simple.  Given they have Fluffy Mundell, the master of simple, as their mentor, I suppose it’s no real surprise.  However, I’m not sure what bit of “It’s no fair” was proving difficult for Hammond to grasp.

Of course, there’s another interpretation that can be placed on the reluctance of the UK Government to do the right thing.  In 2011, Scots elected a majority of SNP MSPs to the Scottish Parliament, something that the voting system was expressly designed to prevent.  It wasn’t supposed to happen and it was baad.  To make matters worse, in 2015, Scots elected a majority of SNP MPs to the UK Parliament.  That was even more baad.  It was very baad.  The aforementioned cynics might even suggest that the Tory government’s decision to retain the VAT liability had more to do with punishing the Scots for having the temerity to elect a government that Westminster and the BritNats didn’t approve of, rather than any rule based logic.  In fact, the change requested by the Scottish Government was little different to the rule introduced by Westminster in 2011 to make schools which became academies exempt from VAT.  OK for English schools, but not for Scottish police and fire services.  In fact, the same cynics could argue that Westminster recognised they were wrong and took the first available politically expedient opportunity to get out of an increasingly embarrassing hole.  However, they were not sufficiently embarrassed to return the money they had stolen since 2013.  Perhaps that would have really given the game away.

All this comes at a time when Brexit could change everything, but the establishment have a cunning plan to stop folk thinking about bad Brexit stuff.  Can you guess what that is, readers?  Come back shortly for an update.

 

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To rail against injustice

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At the end of last week, Westminster decided that, over the five years from 2019 (known as Control Period 6 or CP6), the Scottish Government should be given £3.6bn for the development and maintenance of the Scottish rail network.  Sounds like a lot of money, doesn’t it?  After all, as the Westminster tells us, it is a 20% increase on the previous five years (or CP5).

But the Scottish Government are not happy with the settlement as they believed they should be getting £4.2bn.  So, what’s the justification for their claim?

Well, first of all, there’s inflation, which eats up about 12% of the increase.  So just to keep up with inflation, the CP6 requirement would be £3.36bn.  That means £3.6bn settlement represents only a 7% real terms increase, not the 20% figure that Westminster are keen to talk about.

Perhaps the comparative figures for England and Wales can shed some more light on the Scottish figures.  During the current 5 year period (CP5), Network Rail were given £24.5bn for development and maintenance of the network in England and Wales and this has risen to £34.7bn for the next 5 years.  That represents a 42% increase in gross terms and a more than 26% increase in real terms, dwarfing the Scottish figures.  Actually, the difference is much worse that even these numbers suggest, as the much higher population density in England and Wales means Network Rail can get a much higher level of income from passengers than is possible in Scotland.

Historically, the proportion of Westminster rail spending going to Scotland has been 11.17% of the UK figure, based on the size of the network in Scotland compared to the level of population.  This was put forward by the Office for Rail and Road (ORR), the independent rail body, as part of the original settlement when spending power on rail networks was devolved in 2005.  As can be seen from the figures, the settlement of £3bn for Scotland for the current period represented 12.2% of the England and Wales figure or 10.9% of the UK total, whereas the proposed settlement of £3.6bn for 2019 represents 10.4% of the England and Wales figure or just 9.4% of the UK total.  Perhaps you can see now why the Scottish Government are unhappy.  Their requested figure of £4.2bn for CP6 would have been 12.1% of the England and Wales figure or 10.8% of the UK total, similar to the CP5 figures, though slightly lower.

It seems as if the Scottish Government are justified in their expectation of additional funds.  The reduction of £600m appears to be part of a deliberate decision by Westminster to reduce Scottish rail funding from the historically agreed 11.17%, based on the size of the network, to a figure closer to a population share of 8.4%.

Yet another blow to “pooling and sharing”?  The broad shoulders of the UK again seem to have developed a distinct slope when it comes to returning money generated in Scotland to the Scottish Government for devolved matters.

Who spent the money?

With the publication of the GERS figures, somewhat earlier than usual (does that mean they are even less accurate than normal?), we have the usual Unionist orgy of doom-laden descriptions of the “black hole” in the Scottish finances, clearly demonstrating that Scotland couldn’t possibly support itself without the help of those nice people from Westminster.  All of this is pretty standard stuff and probably by now is pretty much ignored by many Scots.  However, there are a couple of points which all the Unionists have failed to notice, probably because thinking of doom-laden statements tends to occupy so much of your time that you probably haven’t the time to read the report and think of what it really says.

Firstly and something which has been mentioned by many, GERS says more about the failure of Westminster than it does of the failure of Scotland.  Westminster have had over 300 years to make sure that Scotland, as an integral part of the UK (you will notice that I didn’t say “valued part of the UK”), has a strong economy and, using their own figures, they appear to have failed.

Secondly and perhaps less thought about, is this.  Every year, the Scottish Government gets a grant from Westminster through the Barnet Formula to finance the responsibilities that Westminster have generously allowed it to have.  This is a fixed proportion of total UK Government spending on these devolved responsibilities, though the actual amount reduces year on year as UK Government spending is impacted by the current austerity drive.  This grant represents the maximum amount that the Scottish Government can spend, because they are not allowed to spend more than is allocated via the Barnet Formula.  Despite that, the so-called black hole seems to be forever increasing.  Why is this?

If the amount allocated to the Scottish Government is a fixed proportion of UK Government spending on devolved matters and the Scottish Government cannot spend more than that, who is responsible for the extra spending that causes this black hole to get bigger.  Obviously, it can’t be the Scottish Government, so who else makes spending decisions for Scotland that could affect the Scottish deficit?

For all you who said Westminster, award yourselves a gold star.  Westminster makes the majority of decisions that affect Scottish spending reported in GERS.  If Westminster decides to spend more on defence (did someone mention Trident), Scotland has to pay a part of that.  If Westminster decides to go to war (did someone mention Iraq or Syria), Scotland has to pay their share.  Fair enough, you might say, as these things affect the whole country.  But if Westminster decides any expenditure at all is in the national interest, such as London Crossrail or the upgrade to the London sewerage system or the high speed train link from London to Birmingham or the London Olympics  (is there a trend here), then Scotland has to pay a share.  Strangely, it appears that a London based government always thinks that money spent on London benefits the whole country, but doesn’t feel the same way about money spent on other parts of the country.

So, all in all, it’s obvious that the majority of decisions affecting Scottish spending are made by Westminster and if Westminster decrees, then Scotland must pay a share whether they want to or not.

So you decide.  Is the current so-called black hole in Scotland’s finances the result of the Scottish Government’s profligacy or Westminster profligacy?  I don’t think it’s a hard choice.